REPORT DIGEST

 

ILLINOIS

CONSERVATION

FOUNDATION

 

FINANCIAL AUDIT

AND COMPLIANCE EXAMINATION

(In Accordance with the

Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2005

 

Summary of Findings:

Total this report††††††††††† ††††††††† 10

Total prior report††††††††††††††††††††† 2

Repeated findings†††††††              2

 

Release Date:

May 18, 2006 

 

 

 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

 

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza, 740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

 

This Report Digest and the Full Report are also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

SYNOPSIS

 

u     During our testing of cash balances, we noted the Illinois Conservation Foundation (Foundation) did not take timely action during fiscal year 2005 to collateralize (protect) bank balances in excess of the FDIC insurance limit of $100,000.

 

u     The Foundation did not prepare a financial budget for the fiscal year 2005 projected revenues and expenses.

 

u     During our audit of the Foundationís June 30, 2005 financial statements, we recommended extensive adjustments and corrections to the Foundationís accounting records and financial statements.

 

u     The Foundation did not comply with certain parts of the Fiscal Control and Internal Auditing Act, the State Comptroller Act and the Illinois Procurement Code as follows:

 

-          A required internal control certification was not filed with the Office of the Auditor General.

-          Information on locally held funds was not submitted to the Office of the State Comptroller.

-          Copies of grants in excess of $10,000 were not filed with the Office of the State Comptroller.The Foundation awarded 15 grants to sub-grantees in excess of $10,000.

 

u     The Foundation did not follow purchasing procedures by allowing a firm to begin performing accounting related services without a signed formal agreement or contract, and the final amount paid exceeded the contracted maximum amount.

 

 

 

 

 

 

 

{Financial and supplementary information are summarized on the reverse page.}

 

 

 

 

ILLINOIS CONSERVATION FOUNDATION

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

FOR THE FISCAL YEAR ENDED JUNE 30, 2005

 

OPERATING STATEMENT (Governmental Funds)

FY 2005

FY 2004

Revenues:††††††Fund Raising Events.......................................

††††††††††††††††††††††† Donations - Restricted.....................................

††††††††††††††††††††††† Grants and Receipts from Other Governments.....

††††††††††††††††††††††† Donations Ė Unrestricted..................................

††††††††††††††††††††††† Merchandise Sales Ė Restricted.........................

†††† †††††††††††††††††††Investment Income - Unrestricted.....................

††††††††††††††††††††††† Investment Income - Restricted........................

††††††††††††††††††††††† Increase In Fair Value Of Restricted Investments..

††††††††††††††††††††††† Increase In Fair Value Of Unrestricted Investments.

††††††††††††††††††††††† On-Behalf Payments.........................................

                        Publication Sales - Restricted............................

††††††††††††††††††††††† Change in Prepaid Expenses............................

††††††††††††††††††††††††††††††††††† Total Revenue..................................

Expenditures:Administrative................................................

††††††††† ††††††††††††††††Education.....................................................

††††††††††††††††††††††††† Natural Resources and Recreation Programs....

††††††††††††††††††††††††† On-Behalf Payments.....................................

††††††††††††††††††††††††††††††††††† Total Expenditures................................

Change In Net Assets..........................................................

Net Assets, Beginning of Year..........................................

Net Assets, End of Year........................................................

$††††† 36,251 

573,140

1,269,244

96,895

104,499

120,009

6,205

825

80,608 

115,075

46,303

 1,180 

$ 2,450,234

$††† 451,302 

0

2,917,840

†† 115,075 

$ 3,484,217

$(1,033,983)

4,918,295 

$ 3,884,312

$††† 70,208 

1,718,816

1,165,817

53,699

10,059

55,988

4,293

5,009

62,657 

165,946

16,857

††††††††††††43 

$3,329,392

$†† 234,665††

6,489

1,836,241

†††165,946 

$2,243,341

$1,086,051††

3,832,244

$4,918,295

STATEMENT OF NET ASSETS (Governmental Activities)

June 30, 2005

June 30, 2004

Assets:††††††††††††† Cash And Cash Equivalents.............................

††††††††††††††††††††††††† Accounts Receivable......................................

††††††††††††††††††††††††† Accrued Investment Income.........................

†††††††††††††† †††††††††††Inventory......................................................

††††††††††††††††††††††††† Prepaid Expenses...........................................

††††††††††††††††††††††††† Investments...................................................

††††††††††††††††††††††††††††††††††† Total Assets.........................................

Liabilities:†††††† Accounts Payable............................................

†††††††††††††††††††††††† Deferred Revenue.........................................

Total Liabilities...................................

Net Assets:††††† Natural Resources & Recreation - Restricted...

†††††††††††††††††††††††† Endowment/Nonexpendable Ė Restricted..........

†††††††††††††††††††††††† Education - Restricted......................................

†††††††††††††††††††††††† Unrestricted..................................................

††††††††††††††††††††††††††††††††††† Total Net Assets.................................

$983,822

65,044

6,944

21,134

7,818

2,890,313 

$3,975,075

$†††† 50,400 

†††† 40,363 

$†††† 90,763 

$2,461,872

70,836

13,712

1,337,892 

$3,884,312

$2,083,333

14,061

6,276

17,026

6,638

†††† 2,863,815 

$4,991,149

$†††† 32,491

††† †††††40,363 

$†††† 72,854

$4,643,025

70,011

7,507

†††197,752 

$4,918,295

SUPPLEMENTARY INFORMATION

FY 2005

FY 2004

% of Administrative Expenditures to Total Expenditures............

13.0%

10.5%

FOUNDATION EXECUTIVE DIRECTOR

During Engagement Period:Jess Hansen

Currently:Vacant


 

 

 

 

 

 

$90,082 in bank balances were unprotected by FDIC insurance or other collateral

 

 

 

 


Statute requires appropriate collateral be obtained for funds in excess of FDIC coverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Formal annual financial budget was not prepared

 

 

 


Operating policies require a budget to be prepared and approved by the Board of Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounting records required 13 audit adjustments totaling $689,222 to correct errors and omissions

 

Financial statements were deficient regarding required disclosures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Required internal control certification not submitted to the Office of the Auditor General

 

 

 

 

 

Noncompliance with the State Comptroller Act

 

 

 

 

Information on locally held funds was not submitted to the Office of the Comptroller

 

 

 

 

Noncompliance with the Illinois Procurement Code

 

 

Copies of grants in excess of $10,000 were not filed with the Office of the Comptroller

 

 

 

The Foundation awarded 15 grants to sub-grantees in excess of $10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 IDNR is seeking an Attorney General opinion on applicability of statutes

 

 

 

 

 

 

 


Auditorsí comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract for accounting related service was not formally amended to adjust for $43,263 paid in excess of the contract maximum

 

 

 

 

Contract was not formally competitively bid or approved by the Board of Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

BANK BALANCES IN EXCESS OF FDIC INSURANCE

 

During our testing of cash balances, we noted the Foundation did not take timely action during fiscal year 2005 to collateralize (protect) bank balances in excess of the FDIC insurance limit of $100,000.The Foundation established a separate insured account (sweep account) on June 1, 2005.Our testing identified that prior to the sweep account being established a total of $90,082 in bank balances were in excess of the FDIC insurance limits at May 31, 2005.

 

The State Officers and Employees Money Disposition Act (30 ILCS 230/2c) (Act) requires State agencies to obtain appropriate collateral whenever funds deposited exceed the $100,000 FDIC insurance limit.The Foundation is considered a component unit of the State of Illinois and should be following the Act.

 

We recommended the Foundation continue the use of the sweep account to provide protection for their bank balances.(Finding 05-1, pages 18-19)

 

The Foundation responded that they have taken action to reduce risk by establishing a separate sweep account as a matter of sound business practice.In addition to following the Disposition Act, the Foundation noted they will continue the use of the sweep account.

†††††

FINANCIAL BUDGET FOR FISCAL YEAR 2005 WAS NOT PREPARED

 

†††† The Foundation did not prepare a financial budget for fiscal year 2005.The Foundation received $2,449,054 from contributions, grantors and other sources during fiscal year 2005 and spent $3,484,217 on various projects, grants and general administration.

 

†††† The Foundationís operating procedures require an annual budget to be prepared and be presented to the Board of Directors for discussion, amendment and approval.In addition, generally accepted accounting principles set forth that governmental units should prepare a comprehensive annual budget covering all funds for each fiscal year.

 

†††† Budgeting is considered an essential element of an entityís financial planning, control and evaluation process.Without a budget the Foundation runs the risk of incurring unnecessary expenditures, and of not using their resources in the most efficient manner.

 

†††††††††† We recommended the Foundation management prepare an annual budget and submit it to the Board of Directors on a timely basis for approval.(Finding 05-2, page 20)

 

††††† The Foundation agreed with our recommendation in their response and noted a budget was prepared for fiscal year 2005 but was not formally adopted by the Board of Directors.

 

WEAKNESSES IN THE FOUNDATIONíS ACCOUNTING RECORDS AND PREPARATION OF FINANCIAL STATEMENTS

 

During our audit of the Foundationís June 30, 2005 financial statements we recommended extensive adjustments and corrections.As a result of our testing we recommended 13 adjustments to various accounts within the Foundationís financial records for a total amount of $689,222.One particular adjustment was to correct a misposting of $450,000, while $144,687 of other adjustments were to record various accruals required to be made at the end of the year.

 

The Foundationís initial draft financial statements either lacked or were deficient regarding required disclosures for the Foundationís deposits, investments and reclassifications of the unreserved and reserved fund balance amounts.

 

Errors and omissions in the maintenance of the Foundationís accounting records and delays in the preparation of the annual financial statements leads to the use of additional resources in completing the annual audit and can lead to the Foundation presenting information that is not materially correct.

 

We recommended the Foundation devote sufficient resources to its financial accounting function such that the financial information is properly recorded and accounted for to permit the preparation of reliable and timely financial statements.(Finding 05-03, pages 21-22)

 

The Foundation agreed with our recommendation in their response and noted they had contracted with an accounting firm during fiscal year 2005 to perform day-to-day duties in the absence of a fiscal officer.The original agreement with the accounting firm did not include preparation of the Foundationís financial statements.A fiscal officer was hired during fiscal year 2006 to ensure financial statements are properly and timely prepared.

 

NONCOMPLIANCE WITH STATUTORY MANDATES

 

As part of our examination we tested the Foundationís compliance with certain statutory mandates.We noted three instances where, through our interpretation of the statutory mandates, the Foundation was not complying.

 

First, we noted the Foundation did not file its annual certification of their systems of internal control with the Office of the Auditor General as required by the Fiscal Control and Internal Auditing Act (FCIAA).The Foundation had not filed the annual certification as of the end of fieldwork for this engagement.Foundation management indicated they had not been filing the certification because they did not interpret the statute to apply to them.

 

Second, we noted the Foundation was not filing documentation of the establishment of their locally held funds/accounts or quarterly reports of locally held fund/account activity with the Office of the State Comptroller as required by the State Comptroller Act (Act).†††††††††

 

The Foundation has three locally held funds/accounts that are maintained outside of the State Treasury.†† Foundation management noted they did not believe the locally held fund requirements apply to them as the Foundation was created as a not-for-profit corporation under the General Not for Profit Corporation Act of 1986.

 

Third, the Foundation was not filing copies of their grants in excess of $10,000 with the Office of the Comptroller as required by the Illinois Procurement Code (Code).The Illinois Conservation Foundation Act notes the Foundation is exempt from the Code when only private funds are used for procurement expenditures.During fiscal year 2005 the Foundation received approximately $1.269 million of federal grant funds.Grant funds maintain their public identity until they are expended for goods or services and would not be considered private funds.

 

The Foundation awarded 15 grants over $10,000 during fiscal year 2005 from the federal funds they received.Foundation management indicated the language to exempt the Foundation from the Code when private funds are used for procurement expenditures was added to clarify the Foundation is exempt from the Code.

 

Failure to comply with the Fiscal Control and Internal Auditing Act, State Comptroller Act and the Illinois Procurement Code are violations of statutorily mandated responsibilities.

 

We recommended the Foundation either comply with the applicable requirements set forth in the statutes or seek a formal written interpretation from the State of Illinois Office of the Attorney General regarding the applicability of the statutes to the Foundation.(Finding 05-04, pages 23-25)This finding was first reported in 2003.

 

The Foundation responded that since its inception in 1996, they have complied with the laws regulating not-for-profit entities and prior to fiscal year 2003 no material findings were issued indicating the Foundation is required to comply with the statutes noted in the finding.The Department of Natural Resources (IDNR) has sought an interpretation from the State of Illinois Office of the Attorney General regarding the Foundationís status as a State agency.IDNR has not yet received a response from the Illinois Office of the Attorney General.(For the previous Foundation response, see Digest Footnote #1.)

 

The issues noted in the finding have been repeated in three consecutive engagements and the Foundation is well aware of the auditorsí position.With regard to filing the certification required by the FCIAA, a memo from the Foundationís Executive Director and IDNR General Counsel dated November 17, 2003, notes in part ďÖbecause the Department assisted in the creation of the Foundation pursuant to the Illinois Conservation Foundation [Act], it is required to file the FCIAA certification as Ďa corporate outgrowth of State government.íĒFurther, with regard to the Foundationís failure to file grants with the Comptroller, Public Act 92-797, effective August 15, 2002, amended the Illinois Procurement Code.The language of that amendment was taken into consideration and led to the non-compliance first noted in the fiscal year 2003 engagement.

 

PURCHASING PROCEDURES NOT FOLLOWED FOR ACCOUNTING RELATED SERVICES†††

 

†††††††† The Foundation paid a public accounting firm (firm)$17,291 for services prior to entering into a contract with the firm.The Foundation then entered into a contract with the firm to provide the accounting related services for a maximum amount of $23,400.The Foundation paid the firm $66,663, which was $43,263 in excess of the contract maximum.There was no amendment to the contract to exceed the maximum or an extension of the contract as the Foundation continued to use the firm after the end date of the contract.

 

†††††††† The original contract was not competitively bid, and was not approved by the Board of Directors or the Executive Committee.The Board of Directors or the Executive Committee also did not formally approve the increase in the amount paid over the contract maximum or extending the term for providing the accounting related services.

 

†††††††† Failure to have a contract can lead to misunderstandings of what is required of both parties.In addition, failure to adhere to contract terms could also result in unnecessary expenditures to the Foundation.

 

†††††††† We recommended the Foundation follow its purchasing procedures and obtain contracts prior to the start date of the contracted services.We also recommended the Foundation document any changes to contracts to ensure there are no misunderstandings.(Finding 05-05 page 26-27)

 

†††††††† The Foundation responded in the future they would ensure their practices conform to the recommendation.The Foundation went on to indicate a number of factors resulted in changes and continuation of the accounting related services to be performed and that the Executive Director kept the Board apprised that expenses were exceeding the original contract limits.

††††††††

 

OTHER FINDINGS

 

†††††††† The remaining findings are reportedly being given attention by the Foundation.We will review the Foundationís progress towards the implementation of our recommendations during our next engagement.

 

†††††††† Mr. Sam Flood, Chairman of the Board of Directors of the Illinois Conservation Foundation provided the Foundationís responses.

 

AUDITORSí OPINION

 

†††††††† Our auditors state the June 30, 2005 financial statements of the Foundation are fairly presented in all material respects.

†††††

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

 

SPECIAL ASSISTANT AUDITORS

 

†††††††† Ginoli & Company LTD were our special assistant auditors.

 

DIGEST FOOTNOTES

 

#1 - NONCOMPLIANCE WITH STATUTORY MANDATES Ė Previous Foundation Response

 

2004:The Foundation disagrees with this finding, as they do not believe they are a State agency.The Foundation is in the process of seeking a formal written opinion from the Attorney General regarding the Foundationís status.